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ALROSA Ramps Up Output in Q2 2018 To 8.5M Carats, Rough Prices Rising

Mining and Exploration

23/07/2018 10:16

Russian diamond mining giant ALROSA ramped up the volume of processed ore from their alluvial diamond operations, resulting in a 15% increase in overall production compared to the prior quarter while remaining 18% off the pace of production volume during the same quarter a year ago. The miner produced 8.5 m carats during the last three months compared to 7.4 million carats in Q1. The miner attributes this increase, "to seasonal return to production at alluvial deposits supported by the recently ramped-up assets, the Udachny underground mine and Severalmaz." ALROSA’s diamond production for Q2 2018 totalled 10.4 million carats. The y-o-y decline in diamond production was due to the closure of the Mir underground mine (UM), a lower diamond grade at deep horizons of the International UM as well as the processing of a proportionally lower grade of ore at the Jubilee pipe and the Aikhal UM of the Aikhal Division.

The group's volume of processed ore and gravels in Q2 increased by 77% compared to Q1 (up 1% y-o-y) to 10.1 million tons, due to seasonal return to production at alluvial deposits (up 4.4 m t), while ore output remained flat. However, the average diamond grade per ton of ore fell by 35% q-o-q (-18% y-o-y) to 0.84 cpt, mainly due to seasonal return to production at lower-grade alluvial deposits operated by Almazy Anabara and a lower diamond grade at alluvial deposits developed by the Mirny Division.

Fewer rough diamonds sold, prices rising

In volume terms, ALROSA's Q2 rough diamond sales (excl. polished diamond sales) amounted to 9.0 m carats (down 32% from 13.4 million carats in Q1), including 6.3 m carats of gem-quality rough diamonds (-38% q-o-q) and 2.7 m carats of industrial diamonds (-16% q-o-q). The group’s rough diamond sales in Q2 2017 amounted to 10.201 million carats, including 8.048 million carats of gem-quality rough diamonds. While sales volumes declined, the average realized price for gem-quality diamonds rose: following sales in April through June, average realized prices* (including product mix change effect) increased by 6% compared to last quarter and has shot up by 18% y-o-y, from $138.4 per carat to $164 per carat "on the back of higher demand and cutters’ lower inventories." Overall sales for the quarter (ex. polished diamond sales) declined by 33% q-o-q to $1.06 billion, and fell 6% from the $1.13 billion earned in Q2 2017. In Q2 2018, polished diamond sales increased to $26.2 million, increasing by 11% over Q1 and up 15% compared to the $22.7 million sold in the second quarter of 2017.

Inventories as at the end of Q2 2018 declined by 11% q-o-q (-23% y-o-y) to 11 m carats on stable underlying demand for the entire product mix. ALROSA's production outlook remains unchanged at 36.6 million carats, a decrease of 8% y-o-y.

Market overview: demand for jewelry and rough diamonds both growing

ALROSA summarized recent market conditions, noting that in the first three months of 2018, the diamond jewelry market grew by 7%, "as all key markets enjoyed rising sales on the back of a stronger consumer sentiment and a better macro environment." They estimate that diamond jewelry sales in the North American market (USA and Canada) increased by 5% compared to the same period last year, while sales in the Asia-Pacific region grew 11% y-o-y, "largely driven by higher sales in the Mainland China and stronger demand in Hong Kong and S.Korea supported by a growth in tourists’ flow. " In dollar terms, sales in Europe added 14%, mainly on the back of a stronger euro.

They add that In Q2 2018, the rough diamond market demonstrated increased demand across the entire product mix, driven by a reduction in rough diamond supply from diamond miners, “normalized” stock levels at the consumers’ (mid-stream) and ongoing diamond jewelry demand growth in key markets, particularly in the US, Europe and China. As a result of the above factors, no traditional seasonal slack was observed in Q2 2018.